Pollution with the heavy metal cadmium (Cd2+) is a global problem. Cadmium adversely affects living organisms, highlighting the need to develop new methods for removal of this pollutant from the environment. In this study, we used a novel biomaterial based on calcium-crosslinked alginate-encapsulated bacteria to precipitate Cd2+ in polluted water. Our results show that calcium-crosslinked alginate-encapsulated bacteria effectively removed Cd2+ ions from cadmium-polluted water. Approximately 100% of Cd2+ ions were removed by 10 g (wet weight) of this biomaterial when the loading concentration of Cd2+ reached 1 mM in a volume of 50 ml water. During this process, a CdS nanoparticle, showing good crystallinity in the quantum range, was simultaneously produced. To validate the activity and stability of this biomaterial, we measured cysteine desulfhydrase activity in the stored biomaterial and whether this biomaterial could be recycled. The encapsulated bacteria maintained catalytic activity for at least 2 weeks. The capsules were easily regenerated and possessed good recyclability. Our results indicated that calcium-crosslinked alginate-encapsulated bacteria are suitable for depletion of Cd2+ in polluted water and for production of CdS nanoparticles. These calcium-crosslinked alginate-encapsulated bacteria are safe for biological manipulation and can be widely used to produce CdS nanoparticles during bioremediation of Cd2+-polluted water.